VOLITIONRX LTD - Annual Report: 2019 (Form 10-K)

PART IPage 

Item 1A.RISK FACTORS………………………………………………………………………………………...9 

Item 1B.UNRESOLVED STAFF COMMENTS…………………………………………………………………18 

Item 2.PROPERTIES……………………………………………………………………………………………18 

Item 3.LEGAL PROCEEDINGS……………………………………………………………………………….18 

Item 4.MINE SAFETY DISCLOSURES……………………………………………………………………….18 

PART II

Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS  

AND ISSUER PURCHASES OF EQUITY SECURITIES…………………………………………...19 

Item 6.SELECTED FINANCIAL DATA………………………………………………………………….……19 

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  

RESULTS OF OPERATIONS………………………………………………………………………...20 

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK……………….24 

Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA……………………………………..F-25 

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  

FINANCIAL DISCLOSURE………………………………………………………………………..…48 

Item 9A.CONTROLS AND PROCEDURES………………………………………………………………….….48 

Item 9B.OTHER INFORMATION…………………………………………………………………………….….49 

PART III

Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE…………………..…50 

Item 11.EXECUTIVE COMPENSATION…………………………………………………………………....…50 

Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  

RELATED STOCKHOLDER MATTERS……………………………………………………….……50 

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR  

INDEPENDENCE…………………………………………………………………………………...…50 

Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES………………………………………………...50 

PART IV

Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES……………………………………………..…51 

Item 16.FORM 10-K SUMMARY…………………………………………………………………………….….54 

SIGNATURES …..…………………………………………………………………………………..………………..……55 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

You should read this Report in its entirety, including the documents that we file as exhibits to this Report and the documents that we incorporate by reference into this Report, with the understanding that our future results may be materially different from what we currently expect.  The forward-looking statements we make speak only as of the date on which they are made.  We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations.  If we do update or correct any forward-looking statements, readers should not conclude that we will make additional updates or corrections.

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ITEM 1.BUSINESS 

Overview

VolitionRx is a multi-national epigenetics company that applies its Nucleosomics^TM platform through its subsidiaries to develop simple, easy to use, cost-effective blood tests to help diagnose a range of cancers and other diseases. We hope that through earlier diagnosis we can help save and improve the quality of many people’s and animal’s lives throughout the world.

Our Solution/ Science

Our assays are based on the science of Nucleosomics^TM, which is the practice of identifying and measuring nucleosomes in the bloodstream or other bodily fluid – since changes in these parameters are an indication that disease is present.

Background to Genetics Epigenetics and Cancer

Human genetics, the sequence of our DNA, is essentially a “recipe book” containing details of how to make each of the thousands of different proteins in the human body; simply put, there is a different gene (or recipe) for each protein.  However, just because a recipe is in the book, doesn’t mean you have to make it, and nobody makes all the proteins in their DNA. For example, men have all the genes necessary to make ovarian and uterine proteins but do not do so. Similarly, muscle cells do not make liver proteins or kidney proteins. This is because the genes for liver and kidney proteins are “switched off” in muscle cells. The mechanisms for the control of which genes are active or inactive in a cell are collectively known as epigenetics.

There are many different types of cancers but generally the primary cause of each cancer is the mutation within a cell of the DNA encoding or regulating the expression of one or more specific genes called oncogenes. While many mutations can have no consequence, some can lead to the uncontrolled expansion of the mutated cells and their dissemination to other parts of the body from the tissue of origin in a process called metastasis. Another consequence of these mutations is an alteration in the epigenetic regulation of many other genes and this, in turn, can create a unique epigenetic signature in the cancer cells.

Epigenetic control is therefore a critical factor in biology and medicine. A number of epigenetic cancer drugs have been in routine clinical use for more than a decade and the altered epigenetic signature seen in cancer underpins Volition’s diagnostic approaches.

A major mechanism for epigenetic control is mediated through chromosome and nucleosome structure. Each chromosome contains a long, single molecule of DNA which is coated by a complex array of proteins, mostly in the form of nucleosomes, giving the stretched-out, unwound DNA/protein core (or chromatin) the appearance of “beads on a string”. Unwound chromatin is accessible for reading (or transcribing) and “unwound” genes may be active. However, genes whose nucleosomes are coiled or supercoiled are inaccessible and inactive.

Figure 1 – A chromosome

Each nucleosome consists of a disc of eight histone proteins wrapped by a short length of DNA. Nucleosome structure has a dual role: first, it allows the compact storage and protection of the genetic material (or DNA), and second, it modulates the epigenetic regulation (or transcription) of that DNA. This regulation is achieved through reversible chemical changes to both the DNA and protein components as well as through the binding of specific regulatory proteins to the DNA.

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Volition’s Epigenetic Approach

Volition’s approach is to investigate the epigenetic structure of chromatin and nucleosomes rather than investigating only the DNA sequence. We are continuously developing new technologies including:

A suite of low cost Nu.Q^TM immunoassays that can accurately measure nucleosomes containing numerous epigenetic signals or structure.  

Nu.Q^TM Capture technology to isolate or enrich nucleosomes containing particular epigenetic signals or structures for a wide range of potential scientific and medical applications. For example, the enrichment of nucleosomes of tumor origin in blood samples taken from cancer patients. 

We plan to develop an ability to produce synthetic (recombinant) nucleosomes containing exact defined epigenetic signals and structures. These are used to ensure exquisite accuracy of Nu.Q^TM immunoassay tests but also have many other applications including use as tools in epigenetic drug development. 

Improving Outcomes for Cancer Patients

The prospects for cancer patients vary greatly depending on whether the disease is detected at an early localized stage when effective treatment options are available, or at an advanced stage when the disease may have spread, and treatment is much more difficult. Unfortunately, most cancers are symptomless at early stage and most patients are not diagnosed until the disease has spread to other organs in the body and the likely outcome is poor. Simple low-cost immunoassay blood tests to detect cancer at an early stage leading to earlier treatment would greatly improve patient outcomes.

The Limitations of DNA Sequencing in Cancer

The advent of next generation sequencing has revolutionized medical research and led to a host of medical and other innovations. For example, sequencing the DNA of tumor tissue removed by surgery or biopsy uncovers cancer DNA mutations present in the tumor and is used to direct patient treatment selection, but tissue biopsy cannot be used routinely for cancer detection.

However, small fragments of cancer DNA from dead tumor cells are also found in the blood of cancer patients so it is possible to sequence circulating tumor DNA (ctDNA) in a blood sample taken from a patient to test for any cancer DNA mutations (e.g., mutated P53, KRAS, EGFR). Unfortunately, these ctDNA blood tests, often called liquid biopsy tests, have thus far also proved ineffectual for early stage cancer detection.

The main reasons why ctDNA tests alone have not proved useful for early cancer detection include:

The level of DNA fragments circulating in the blood is very low. 

Only a small proportion of the circulating DNA fragments are of tumor origin and the proportion is especially low in early stage cancer (usually less than 1%). The remaining “healthy” DNA fragments originate mainly from dead white blood cells. 

A DNA sequence mutation will occur on only one in several million (up to 20 million) of the circulating DNA fragments that do originate from cancer cells. 

This means that cancer mutations are found in one in millions of a small percentage of a very low level of circulating DNA fragments, with the result that ctDNA is undetectable in most early stage cancer patients.  

Many cancer-like mutations have recently been found to be present in the blood of healthy elderly people through a process known as clonal hematopoiesis. Any DNA released from these cells could lead to false positive readings. 

Volition’s Epigenetic Approach to Cancer

Cancer is in essence a disease of genetic and epigenetic mis-regulation of oncogenes and tumor suppressor genes in the chromosomes of affected cells, leading to uncontrolled cell division and eventually to uncontrolled tumor growth and spread. Thus, the epigenetic signaling structures of chromosomes and nucleosomes are different in cancer cells and healthy cells of the same tissue.

When a cancer cell dies, its chromosomes are digested into nucleosomes as shown in the figure below. Most nucleosomes are metabolized, but some are released into the blood stream as circulating nucleosomes. The DNA attached to these nucleosomes is ctDNA.

However, liquid biopsy companies extract only the DNA and discard the remainder of the nucleosome.

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Volition analyzes whole circulating nucleosomes containing particular epigenetic signals and structures using our low cost, but highly accurate Nu.Q^TM nucleosome immunoassay tests.

Figure 2 – Digestion of a chromosome into nucleosomes.

The epigenetic structure of nucleosomes of cancer origin is known to differ from that of nucleosomes from healthy cells. These epigenetic changes occur early and drive the development of cancer, for example by inappropriately activating oncogenes that promote cell division or inactivating tumor suppressor genes that repress cell division. However, the structural epigenetic changes that occur are not restricted to “1 in 20 million” nucleosomes or even to oncogenes and tumor suppressor genes, but are widely distributed, providing a larger cancer signal, enabling earlier detection of cancer. We use our Nu.Q^TM immunoassay tests to detect a variety of early stage cancers.

Circulating cancer nucleosomes also differ from nucleosomes of healthy origin in other ways. For example, the DNA fragments in cancer nucleosomes are approximately 20 base pairs (or about 14%) shorter than the DNA fragments in nucleosomes originating in healthy cells. This structural difference is used as the basis of one of Volition’s Nu.Q^TM Capture technologies to separate or enrich cancer nucleosomes by removing nucleosomes of healthy origin. Volition expects that Nu.Q^TM Capture technology will further increase the accuracy of its Nu.Q^TM immunoassay tests to detect early stage cancers and will also be useful to ctDNA companies to decrease the cost and increase the accuracy of liquid biopsy tests.

Research and Development

We are developing Nucleosomics^TM technologies in a number of areas including:

Adaptation and optimization of Nu.Q^TM immunoassay tests across multiple clinical platforms worldwide for the rapid quantification of epigenetic changes in blood and other biofluids. Volition’s Nu.Q^TM assays for use in clinical studies operate on an FDA-approved random access immunoassay autoanalyzer using a chemiluminescent magnetic particle-based assay format, a format which has enhanced analytical performance.

Nu.Q^TM assays are used for the development of Nu.Q^TM blood tests for the most prevalent cancers focusing initially on colorectal cancer, lung cancer and hematological cancers using our Nucleosomics^TM biomarker discovery platform. Our development platform includes assays to be used for asymptomatic (screening) subjects, high-risk populations and symptomatic patients. We are developing blood based Nu.Q^TM assays to detect specific biomarkers that can be used individually or in combination to generate a profile which forms the basis of a product for a particular cancer or disease.

Nu.Q^TM Capture technology to isolate or enrich nucleosomes containing particular epigenetic signals or structures for complete analysis by mass spectrometry, DNA sequencing, immunoassays or other methods for a wide range of potential scientific and medical applications. For example, the enrichment of nucleosomes of tumor origin in blood samples taken from cancer patients for biomarker discovery.

More widespread analysis of circulating chromatin fragments that include epigenetically active chromatin proteins.

In addition to human diagnostics, we are also developing the use of the Nu.Q^TM technology in veterinary applications.  An initial proof-of-concept study demonstrated that nucleosomes can be detected in dogs and therefore have the potential to differentiate cancer from other diseases.  We will now test the Nu.Q^TM platform in larger trials in veterinary medicine.  Our extensive intellectual property portfolio includes the coverage of veterinary applications.

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Commercialization will take multiple forms in various markets and opportunities including, but not limited to:

Licensing of intellectual property for Research Use Only (RUO) sale of Nu.Q^TM assays and/or Nu.Q^TM Capture reagents; 

Licensing of intellectual property for laboratory developed patient testing services utilizing Nu.Q^TM  assays and/or Nu.Q^TM Capture reagents; 

Licensing of intellectual property for clinical products utilizing Nu.Q^TM assays and/or Nu.Q^TM Capture reagents; 

Sale of clinical products utilizing Nu.Q^TM assays and/or Nu.Q^TM Capture reagents through distributor networks; 

Direct research services in Nu.Q^TM assays and/or Nu.Q^TM Capture technology; 

Direct veterinary clinical services in Nu.Q^TM assays; and 

Sale of veterinary clinical products utilizing Nu.Q^TM Vet assays and/or Nu.Q^TM Capture reagents through distributor networks. 

If we do not have enough funds to fully implement our business plan, we will be forced to scale back our plan of operations and our business activities, increase our anticipated timeframes to complete each milestone or seek additional funding. In the event that additional financing is delayed, we will prioritize the maintenance of our research and development personnel and facilities, primarily in Belgium.

The Market Opportunity

Cancer is one of the leading causes of death worldwide, accounting for around 9.5 million annual deaths globally. There are over 18 million new cases of cancer diagnosed each year and given the aging population this is expected to grow rapidly to over 29.5 million new cases annually by 2040. Currently, in the United States there are more than three new cases of cancer diagnosed and one person dies from a cancer-related cause every minute. Statistically, the chances of surviving cancer are greatly improved by early detection and treatment. However, there are currently very few blood tests for diagnosis of cancer in common clinical use.

We believe that early, non-invasive, accurate cancer diagnosis remains a significant unmet medical need and a significant commercial opportunity. For these reasons, cancer diagnostics is an active field of research and development both academically and commercially.

The global in vitro diagnostic medical device, or IVD, market was $64.5 billion in 2017 and is forecasted to reach $93.6 billion by 2025, registering a compound annual growth rate, or CAGR, of 4.8% from 2018 to 2025.  The forecasted growth is due primarily to the increasing health care demands of an aging population.

The United States is currently the largest veterinary market in the world and has a clearly defined regulatory pathway through the U.S. Department of Agriculture (USDA), requiring fewer and smaller clinical studies than the FDA process for human diagnostics. This generally allows for a much faster route to revenue for veterinary products as compared to human products.

We anticipate that because of their ease of use and cost efficiency, our tests have the potential to become the first method of choice for cancer diagnostics, allowing detection of a range of cancers at an earlier stage than typically occurs currently, and testing of individuals who, for reasons such as time, cost or aversion to current methods, are not currently being tested.

Competition

We anticipate facing competition primarily from healthcare, pharmaceutical and diagnostic companies such as Exact Sciences Corporation, Guardant Health, GRAIL Inc., Freenome Holdings Inc., CellMax Life, Archer DX Inc., Thrive Earlier Detection Corp., Foundation Medicine Inc., Oncocyte Corporation, OpKo Health Inc., MDNA Life Sciences Inc., Oncimmune Holdings Plc, Abbott Laboratories Inc., Cepheid Inc., Koninklijke Philips N.V., GE Healthcare, Siemens, Gen-Probe Incorporated, EpiGenomics AG, MDxHealth SA, and Roche Diagnostics. There may also be other companies developing products competitive with ours of which we are unaware.

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We predict that our future products will have a competitive edge compared to those offered by competitors on the basis that our tests are being developed to be accurate, cost-effective and attractive from a government reimbursement perspective, easy to use, non-invasive, technologically advanced, and compatible with immunoassay systems, based on strong intellectual property and to be used for mass screenings.

Many of our competitors have substantially greater financial, technical, and other resources and larger, more established marketing, sales and distribution systems than we have. Many of our competitors also offer broad product lines outside of the diagnostic testing market and have brand recognition. Moreover, our competitors may make rapid technological developments that may result in our intended technologies and products becoming obsolete before we are able to enter the market, recover the expenses incurred to develop them or generate significant revenue. Our success will depend, in part, on our ability to develop our intended products in a timely manner, keep our future products current with advancing technologies, achieve market acceptance of our future products, gain name recognition and a positive reputation in the healthcare industry, and establish successful marketing, sales and distribution efforts.

Government Regulations

The health care industry, and thus our business, is subject to extensive federal, state, local and foreign regulation. Some of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective interpretations. In addition, these laws and their interpretations are subject to change.

Both United States federal and state governmental agencies continue to subject the health care industry to intense regulatory scrutiny, including heightened civil and criminal enforcement efforts. As indicated by work plans and reports issued by these agencies, the federal government will continue to scrutinize, among other things, the marketing, labeling, promotion, manufacturing and export of diagnostic health care products. Our diagnostic products fall within the IVD medical device category and are subject to FDA clearance or approval in the United States.

The federal government also has increased funding in recent years to fight health care fraud, and various agencies, such as the United States Department of Justice, the Office of Inspector General of the Department of Health and Human Services, or OIG, and state Medicaid fraud control units, are coordinating their enforcement efforts.

Notified Bodies can begin auditing to the EU IVDR once they have been designated as a Notified Body under the EU IVDR by their Competent Authority.  For now, we expect the first Notified Bodies to be notified according to the EU IVDR by the end of 2019 and we anticipate that TÜV SÜD will be one of these.  In practice, it will not be possible to CE mark a product according to the EU IVDR beforehand.  For Class C devices (we expect that our devices will be Class C), the conformity assessment procedure will be a combination of the Quality Management System audits and Technical Documentation assessments.  The assumed assessment time needed for a Technical Documentation assessment of a Class C device is expected to last from about 2 months to 6 months. We have already begun discussions with the TÜV SÜD in order to ensure compliance with the EU IVDR as soon as possible.

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We will also be required to comply with numerous other federal, state, and local laws relating to matters such as safe working conditions, industrial safety, and labor laws. We may incur significant costs to comply with such laws and regulations in the future, and lack of compliance could have material adverse effects on our operations.

We believe that we have structured our business operations to comply with applicable legal requirements. However, it is possible that governmental entities or other third parties could interpret these laws differently and assert otherwise, which could have a material adverse impact on our business.

Regulatory Approach

Commercialization of our future products in the clinical IVD market (e.g. for patient diagnosis in hospitals, clinics, etc.) requires government approval (CE marking in Europe, FDA approval in the United States, and Chinese Food and Drug Administration (CFDA) approval in China).

In the United States, we anticipate that our tests will have to be cleared through the FDA’s premarket notification or 510(k), process or its premarket approval, or PMA, process. The determination of whether a 510(k) or a PMA is necessary will depend in part on the proposed indications for use and the FDA’s assessment of the risk associated with the use of the IVD for a particular indication. A similar system operates in China through the CFDA. In the European Union, our tests can be marketed after a declaration and marking that the test conforms to the essential requirements of the relevant European health, safety and environmental protection legislation, or CE marking. The CE mark is also recognized in certain Asian territories, including India, for the private payer market.

We are working on the development of clinical products based on the enrichment and analysis of epigenetically modified circulating nucleosomes using immunoassay, mass spectrometry, DNA sequencing and other methods. We have used this position to build a patent portfolio around the ability to profile the epigenetic environment surrounding circulating chromosome fragments from diseased cells including the epigenetic signaling status of nucleosomes, DNA, and other epigenetic chromatin proteins.

Our patent portfolio includes 23 patent families and a total of 44 patents granted related to our diagnostic tests (including veterinary applications), with 8 patents granted in the United States, 9 patents granted in Europe and a further 27 patents granted worldwide. Additionally, we have a total of 105 patent applications currently pending, with 13 patent applications in the United States, 10 in Europe and a further 82 worldwide.

We intend to continue our development of the Nucleosomics^TM technologies and will continue to apply for patents for future product developments. Our strategy is to protect the technologies and gain market exclusivity with patents in Europe and the United States and in other strategic countries. The patents on the technologies underlying our products should provide broad coverage for each product, including protection through at least 2031 for products developed using the Nu.Q-X, Nu.Q-V and Nu.Q-A technologies.

Employees

As of December 31, 2019, we (including our subsidiaries) had 50 full-time equivalents compared to 44 as of December 31, 2018.

Corporate History

The Company was incorporated on September 24, 1998 in the State of Delaware under the name “Standard Capital Corporation”. On September 22, 2011, the Company filed a Certificate for Renewal and Revival of Charter with the Secretary of State of Delaware. Pursuant to Section 312 of Delaware General Corporation Law, the Company was revived under the new name of “VolitionRX Limited” (which name was subsequently amended to reflect “VolitionRx Limited”).  The Company acquired its wholly owned operating subsidiary, Singapore Volition Pte. Limited, a Singapore registered company, or Singapore Volition, on October 6, 2011.  Singapore Volition currently has one subsidiary, Belgian Volition SPRL, a Belgium private limited liability company, or Belgian Volition, which it acquired on September 22, 2010.  Belgian Volition has three subsidiaries, Volition Diagnostics UK Limited, which was formed on November 13, 2015, Volition America, Inc., which was formed on February 3, 2017, and Volition Veterinary Diagnostics Development LLC, which was formed on June 3, 2019.

Our principal executive office is located at 13215 Bee Cave Parkway, Suite 125, Galleria Oaks B, Austin, Texas 78738.  Our telephone number is +1 (646) 650-1351.  Our website is located at www.volition.com.  The information that can be accessed through our website is not incorporated by reference into this Report and should not be considered to be a part hereof.

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Financial Information

WHERE YOU CAN GET ADDITIONAL INFORMATION

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act electronically with the SEC.  You can access these reports and other filings electronically on the SEC’s web site, www.sec.gov.

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ITEM 1A.RISK FACTORS 

An investment in our securities involves certain risks, including those set forth below and elsewhere in this Report.  In addition to the risks set forth below and elsewhere in this Report, other risks and uncertainties may exist that could adversely affect our business and financial condition.  If any of the following risks actually materialize, our business, financial condition and/or operations could suffer. In such event, the value of our common stock could decline, and you could lose all or a substantial portion of your investment. You should carefully consider the risks described below as well as other information and data included in this Report.

Risks Associated with our Company

We have not generated any significant revenue since our inception, and we may never achieve profitability.

We are a clinical stage company and have incurred losses since our formation.  As of December 31, 2019, we have an accumulated total deficit of approximately $89.8 million. As we continue the discovery and development of our future diagnostic products, our expenses are expected to increase significantly.  Even as we begin to market and sell our intended products, we expect our losses to continue as a result of ongoing research and development expenses, as well as increased manufacturing, sales and marketing expenses.  These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders’ equity. Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict when or if we will become profitable.  Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.  If we are unable to achieve and then maintain profitability, our business, financial condition and results of operations will be negatively affected, and the market value of our common stock will decline.

We may need to raise additional capital in the future. If we are unable to secure adequate funds on terms acceptable to us, we may be unable to execute our plan of operations.

We will require additional capital to fully fund our current strategic plan, which includes successfully commercializing our Nu.Q^TM cancer pipeline and developing future products. If we incur delays in commencing commercialization of our Nu.Q^TM cancer pipeline or other future products or in achieving significant product revenue, or if we encounter other unforeseen adverse business developments, we may exhaust our capital resources prior to the commencement of commercialization.

We cannot be certain that additional capital will be available when needed or that our actual cash requirements will not be greater than anticipated. Financing opportunities may not be available to us, or if available, may not be available on favorable terms. The availability of financing opportunities will depend on various factors, such as market conditions and our financial condition and outlook. In addition, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we obtain debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to obtain financing on terms favorable to us, we may be unable to execute our plan of operations and we may be required to cease or reduce development or commercialization of any future products, sell some or all of our technology or assets or merge with another entity.

It is difficult to forecast our future performance, which may cause our financial results to fluctuate unpredictably.

Our limited operating history and the rapid evolution of the market for diagnostic products make it difficult for us to predict our future performance. A number of factors, many of which are outside of our control, may contribute to fluctuations in our financial results, such as:

our ability to develop or procure antibodies for clinical use in our future products; 

our ability to translate preliminary clinical results to larger prospective symptomatic and screening populations; 

the demand for our intended products; 

our ability to obtain any necessary financing; 

our ability to market and sell our future products; 

market acceptance of our future products and technology; 

performance of any future strategic business partners; 

our ability to obtain regulatory clearances or approvals; 

our success in collecting payments from third-party payer and customers; 

changes in technology that may render our future products uncompetitive or obsolete; 

competition with other cancer diagnostics companies; and 

adverse changes in the healthcare industry. 

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Our future success depends on our ability to retain our officers and directors, scientists, and other key employees and to attract, retain and motivate qualified personnel.

Our success depends on our ability to attract, retain and motivate highly qualified management and scientific personnel. In particular, we are highly dependent on Cameron Reynolds, our President and Chief Executive Officer, our other officers and directors, scientists and key employees. The loss of any of these persons or their expertise would be difficult to replace and could have a material adverse effect on our ability to achieve our business goals. In addition, the loss of the services of any one of these persons may impede the achievement of our research, development and commercialization objectives by diverting management’s attention to the identification of suitable replacements, if any. There can be no assurance that we will be successful in hiring or retaining qualified personnel and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Recruiting and retaining qualified scientific personnel and, in the future, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among pharmaceutical, biotechnology and diagnostic companies for similar personnel. We also experience competition for the hiring of scientific personnel from universities and research institutions. We do not maintain “key person” insurance on any of our employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research, development and commercialization strategies. Our consultants and advisors, however, may have other commitments or employment that may limit their availability to us.

We expect to expand our product development, research and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We are focused on developing our pipeline for future products. Our efforts will result in significant growth in the number of our consultants, advisors, and employees and the scope of our operations. In order to manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plan or disrupt our operations.

We have limited experience with direct sales and marketing and any failure to build and manage a direct sales and marketing team effectively, or to successfully engage third party providers for such services, could have a material adverse effect on our business.

Our products will require several dynamic and evolving sales models tailored to different worldwide markets, users and products. In 2015, we decided to focus our sales strategy on the clinical IVD market with the CE marking of our first product in Europe. Following CE marking of our first product in Europe we intend to enter the European markets and, following the completion of any necessary regulatory clearances, certain Asian markets.  Even when we have received a CE mark, we must still seek regulatory clearance in other jurisdictions.  A failure to obtain these regulatory clearances in other jurisdictions could negatively affect our business.  Pending completion of our review of the regulatory environment in the United States, including the effect of recent pronouncements regarding Laboratory Developed Tests, or LDTs, by the FDA, we may decide to enter the United States market through a CLIA certified laboratory located in the United States.  We remain firmly committed to pursuing FDA approval as our primary objective.  FDA approval can consist of PMA or 510(k) clearance depending on the test complexity and risk posed to patients.  We intend to pursue the most appropriate approval pathway for each individual product developed.  We intend to progressively grow to large volumes of tests sold to centralized laboratories and eventually reach the mass diagnostics testing market.  The exact nature of the ideal sales strategy will evolve as we continue to develop our intended products and seek entry into the IVD markets.  We have limited experience with direct sales and marketing and we currently intend to engage a network of distributors to help commercialize our products worldwide. Any failure to build and manage a direct sales and marketing team effectively, or to successfully engage third party providers for such services, could have a material adverse effect on our business.

There are significant risks involved in building and managing our sales and marketing organization, as well as identifying and negotiating deals with the right sales and distribution partners, including risks related to our ability to:

identify appropriate partners; 

negotiate beneficial partnership and distribution agreements; 

hire qualified individuals as needed; 

generate sufficient leads within our targeted market for our sales force; 

provide adequate training for effective sales and marketing; 

protect intellectual property rights; 

retain and motivate our direct sales and marketing professionals; and 

effectively oversee geographically dispersed sales and marketing teams. 

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Our failure to adequately address these risks could have a material adverse effect on our ability to increase sales and use of our future products, which would cause our revenues to be lower than expected and harm our results of operations.

Our Second Amended and Restated Certificate of Incorporation exculpates our officers and directors from certain liability to our Company and our stockholders.

Our Second Amended and Restated Certificate of Incorporation contains a provision limiting the liability of our officers and directors for their acts or failures to act, except for acts involving intentional misconduct, fraud or a knowing violation of law. This limitation on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our stockholders from suing our officers and directors based upon breaches of their duties to our Company.

We have identified material weaknesses in our internal control over financial reporting that have not yet been remediated, and the failure to address these material weaknesses, or the identification of any others, could impact the reliability of our financial reporting and harm investors’ views of us, which could adversely impact our stock price.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets; 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and/or directors; and 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. 

We have determined that we have material weaknesses in our internal control over financial reporting as of December 31, 2019. See Item 9A. Controls and Procedures of this Report for a complete discussion of these material weaknesses in our internal control over financial reporting and remediation efforts. Although we are undertaking steps to address these material weaknesses, the existence of a material weakness is an indication that there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected in the current or any future period. There can be no assurance that we will be able to fully implement our plans and controls, as further described in Item 9A, to address these material weaknesses, or that the plans and controls, if implemented, will be successful in fully remediating these material weaknesses. In addition, we may in the future identify further material weaknesses in our internal control over financial reporting that we have not discovered to date. If we fail to successfully remediate the identified material weaknesses, or we identify further material weaknesses in our internal controls, the market’s confidence in our financial statements could decline and the market price of our common stock could be adversely impacted. Additionally, for so long as we remain as a smaller reporting company, under current rules our accounting firm will not be required to provide an opinion regarding our internal controls over financial reporting.  

We have a “going concern” opinion from our auditors, indicating the possibility that we may not be able to continue to operate.

Our independent registered public accountants have expressed substantial doubt about our ability to continue as a going concern. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. If we fail to raise sufficient capital when needed, we will not be able to complete our proposed business plan. As a result, we may have to liquidate our business and investors may lose their investments. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish our plan of operations described herein, obtain financing and eventually attain profitable operations. Investors should consider our independent registered public accountant’s comments when deciding whether to invest in the Company.

Our management has broad discretion over the use of our available cash and might not spend available cash in ways that increase the value of your investment.

As of December 31, 2019, we had $16,966,168 in combined cash and cash equivalents compared to $13,427,222 as of December 31, 2018. Our management currently expects to deploy these resources primarily to expand our commercialization activities, to fund our product development efforts and for general corporate and working capital purposes. However, our management has broad discretion to pursue other objectives. You will be relying on the judgment of our management regarding the application and prioritization of our resources. Our management might not apply our cash in ways that increase or permit any return of your investment.

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Risks Associated with our Business

Failure to successfully develop, manufacture, market, and sell our future products will have a material adverse effect on our business, financial condition, and results of operations.

We are in the process of developing a suite of diagnostic tests as well as additional products. The successful development and commercialization of our intended products is critical to our future success. Our ability to successfully develop, manufacture, market, and sell our future products is subject to a number of risks, many of which are outside our control. There can be no assurance that we will be able to develop and manufacture products in commercial quantities at acceptable costs, successfully market any products, or generate revenues from the sale of any products. Failure to achieve any of the foregoing would have a material adverse effect on our business, financial condition, and results of operations.

Our business is dependent on our ability to successfully develop and commercialize diagnostic products. If we fail to develop and commercialize diagnostic products, we may be unable to execute our plan of operations.

Our current business strategy focuses on discovering, developing and commercializing diagnostic products. The success of our business will depend on our ability to fully develop and commercialize the diagnostic products in our current development pipeline as well as continue the discovery and development of other diagnostics products.

Prior to commercializing the Nu.Q^TM tests and other diagnostic products, we will be required to undertake time-consuming and costly development activities with uncertain outcomes, including conducting clinical studies and obtaining regulatory clearance or approval in the United States, Asia and in Europe. Delays in obtaining approvals and clearances could have material adverse effects on us and our ability to fully carry out our plan of operations. We have limited experience in taking products through these processes and there are considerable risks involved in these activities. The science and methods that we are employing are innovative and complex, and it is possible that our development programs will ultimately not yield products suitable for commercialization or government approval. Products that appear promising in early development may fail to be validated in subsequent studies, and even if we achieve positive results, we may still fail to obtain the necessary regulatory clearances or approvals. Few research and development projects result in commercial products, and perceived viability in early clinical studies often is not replicated in later studies. At any point, we may abandon development of a product, or we may be required to expend considerable resources obtaining additional clinical and nonclinical data, which would adversely impact the timing for generating potential revenue from those products. Further, our ability to develop and launch diagnostic tests is dependent on our receipt of substantial additional funding. If our discovery and development programs yield fewer commercial products than we expect, we may be unable to execute our business plan, and our business, financial condition and results of operations may be adversely affected.

The results of pre-clinical studies and completed clinical trials are not necessarily predictive of future results, and our current product candidates may not have favorable results in later studies or trials which, in turn, could have a material adverse effect on our business.

As described above, we must conduct extensive testing of our product candidates and new indications of our marketed products before we can obtain regulatory approval to market and sell them. Success in pre-clinical studies or completed clinical trials does not ensure that later studies or trials, including continuing pre-clinical studies and large-scale clinical trials, will be successful nor does it necessarily predict future results. Favorable results in early studies or trials may not be repeated in later studies or trials, and product candidates in later stage trials may fail to show acceptable safety and efficacy despite having progressed through earlier trials. We may be required to demonstrate through large, long-term outcome trials that our product candidates are safe and effective for use in a broad population prior to obtaining regulatory approval. The failure of clinical trials to demonstrate the safety and effectiveness of our clinical candidates for the desired indication(s) would preclude the successful development of those candidates for such indication(s), in which event our business, prospects, results of operations and financial condition may be adversely affected.

Our failure to obtain necessary regulatory clearances or approvals on a timely basis would significantly impair our ability to distribute and market our future products on the clinical IVD market.

We are subject to regulation by the FDA in the United States, the Conformité Européenne in Europe, the CFDA in China, and other regulatory bodies in other countries where we intend to sell our future products.  Before we are able to place our intended products in the clinical IVD markets in the United States, China and Europe, we will be required to obtain clearance or approval of our future products from the FDA and the CFDA with respect to the United States and China, respectively, and receive a CE mark with respect to Europe.

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Additionally, even if we receive the required government clearance or approval of our intended products, we are still subject to continuing regulation and oversight. Under the FDA, diagnostics are considered medical devices and are subject to ongoing controls and regulations, including inspections, compliance with established manufacturing practices, device-tracking, record-keeping, advertising, labeling, packaging, and compliance with other standards. The process of complying with such regulations with respect to current and new products can be costly and time-consuming. Failure to comply with these regulations could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, any FDA regulations governing our future products are subject to change at any time, which may cause delays and have material adverse effects on our operations. In Europe, IVD companies are currently able to self-certify that they meet the appropriate regulatory requirements (which are subject to change with the EU MDR and the EU IVDR noted above) but are subject to inspection for enforcement. European national agencies, such as customs authorities and/or the Departments of Health, Industry and Labor, conduct market surveillance to ensure the applicable requirements have been met for products marketed within the European Union.

Reductions or changes in reimbursement policies could limit our ability to sell our products.

Market acceptance and sales of our products will depend, in part, on reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which products they will pay for and establish reimbursement levels for those products. To manage healthcare costs, many governments and third-party payers in the United States increasingly scrutinize the pricing of new products and require greater levels of evidence of favorable clinical outcomes and cost-effectiveness before extending coverage. We cannot be sure that reimbursement will be available for our products and, if reimbursement is available, the level of such reimbursement. Reimbursement may impact the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our future products.

If the marketplace does not accept the products in our development pipeline or any other diagnostic products we might develop, we may be unable to generate sufficient revenue to sustain and grow our business.

Our intended products may never gain significant acceptance in the research or clinical marketplace and therefore may never generate substantial revenue or profits. Physicians, hospitals, clinical laboratories, researchers or others in the healthcare industry may not use our future products unless they determine that they are an effective and cost-efficient means of detecting and diagnosing cancer. If our research and studies do not satisfy providers, payors and others as to the reliability and effectiveness, we may experience reluctance or refusal on the part of the physician to use our future products. In addition, we will need to expend a significant amount of resources on marketing and educational efforts to create awareness of our future products and to encourage their acceptance and adoption. If the market for our future products does not develop sufficiently or the products are not accepted, our revenue potential will be harmed.

The cancer diagnostics market is highly competitive and subject to rapid technological change; accordingly, we will face fierce competition and our intended products may become obsolete.

The cancer diagnostics market is extremely competitive and characterized by evolving industry standards and new product enhancements. Cancer diagnostic tests are technologically innovative and require significant planning, design, development, and testing at the technological, product, and manufacturing process levels. These activities require significant capital commitments and investment. There can be no assurance that our intended products or proprietary technologies will remain competitive following the introduction of new products and technologies by competing companies within the industry. Furthermore, there can be no assurance that our competitors will not develop products that render our future products obsolete or that are more effective, accurate or can be produced at lower costs. There can be no assurance that we will be successful in the face of increasing competition from new technologies or products introduced by existing companies in the industry or by new companies entering the market.

We expect to face intense competition from companies with greater resources and experience than us, which may increase the difficulty for us to achieve significant market penetration.

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significantly greater name recognition; 

established relationships with healthcare professionals, companies and consumers; 

additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage; 

established supply and distribution networks; and 

greater resources for product development, sales and marketing, and intellectual property protection. 

Many of these other companies have developed and will continue to develop new products that will compete directly with our future products. In addition, many of our competitors spend significantly greater funds for the research, development, promotion, and sale of new and existing products. These resources may allow them to respond more quickly to new or emerging technologies and changes in consumer requirements. We also face competition in our search for third parties to assist us with sales and marketing of our product candidates, which may negatively impact our ability to enter into favorable sales and marketing arrangements. For all the foregoing reasons, we may not be able to compete successfully against our competitors.

Declining global economic or business conditions may have a negative impact on our business.  

Concerns over United States healthcare reform legislation and energy costs, geopolitical issues, the availability and cost of credit and government stimulus programs in the United States and other countries may contribute to increased volatility and diminished expectations for the global economy.  If the economic climate deteriorates, our business, including our access to the Research Use Only, or RUO, or clinical IVD markets for diagnostic tests, could be adversely affected, resulting in a negative impact on our business, financial condition and results of operations.

We will rely on third parties to manufacture and supply our intended products. Any problems experienced by these third parties could result in a delay or interruption in the supply of our intended products to our customers, which could have a material negative effect on our business.

We will rely on third parties to manufacture and supply our intended products. The manufacture of our intended diagnostic products will require specialized equipment and utilize complicated production processes that would be difficult, time-consuming and costly to duplicate. If the operations of third-party manufacturers are interrupted or if they are unable to meet our delivery requirements due to capacity limitations or other constraints, we may be limited in our ability to fulfill our future sales orders. Any prolonged disruption in the operations of third-party manufacturers could have a significant negative impact on our ability to sell our future products, could harm our reputation and could cause us to seek other third-party manufacturing contracts, thereby increasing our anticipated development and commercialization costs. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards required by the FDA and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop products or receive approval of any products in a timely manner.

The manufacturing operations of our future third-party manufacturers will likely be dependent upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

The operations of our future third party manufacturers will likely be dependent upon third-party suppliers. A supply interruption or an increase in demand beyond a supplier’s capabilities could harm the ability of our future manufacturers to manufacture our intended products until new sources of supply are identified and qualified.

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Reliance on these suppliers could subject us to a number of risks that could harm our business, including:

interruption of supply resulting from modifications to or discontinuation of a supplier’s operations; 

delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component; 

a lack of long-term supply arrangements for key components with our suppliers; 

inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms; 

difficulty and cost associated with locating and qualifying alternative suppliers for components in a timely manner; 

production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications; 

delay in delivery due to suppliers prioritizing other customer orders over ours; 

damage to our brand reputation caused by defective components produced by the suppliers; and 

fluctuation in delivery by the suppliers due to changes in demand from us or their other customers. 

Any interruption in the supply of components of our future products or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our future customers, which would have an adverse effect on our business.

We will depend on third-party distributors in the future to market and sell our future products which will subject us to a number of risks.

We will depend on third-party distributors to sell, market, and service our future products in our intended markets. We are subject to a number of risks associated with reliance upon third-party distributors including:

lack of day-to-day control over the activities of third-party distributors; 

third-party distributors may not commit the necessary resources to market and sell our future products to our level of expectations; 

third-party distributors may terminate their arrangements with us on limited or no notice or may change the terms of these arrangements in a manner unfavorable to us; and 

disagreements with our future distributors could result in costly and time-consuming litigation or arbitration which we could be required to conduct in jurisdictions with which we are not familiar. 

If we fail to establish and maintain satisfactory relationships with our future third-party distributors, our revenues and market share may not grow as anticipated, and we could be subject to unexpected costs which could harm our results of operations and financial condition.

If the patents that we rely on to protect our intellectual property prove to be inadequate, our ability to successfully commercialize our future products will be harmed and we may never be able to operate our business profitably.

If we are not able to protect our proprietary technology and information, our competitors may use our inventions to develop competing products. We cannot assure you that any of the pending patent applications will result in patents being issued. In addition, due to technological changes that may affect our future products or judicial interpretation of the scope of our patents, our intended products might not, now or in the future, be adequately covered by our patents.  

If third parties assert that we have infringed their patents and proprietary rights or challenge the validity of our patents and proprietary rights, we may become involved in intellectual property disputes and litigation that would be costly, time consuming, and delay or prevent the development or commercialization of our future products.

Our ability to commercialize our intended products depends on our ability to develop, manufacture, market and sell our future products without infringing the proprietary rights of third parties. Third parties may allege that our future products or our methods or discoveries infringe their intellectual property rights. Numerous United States and foreign patents and pending patent applications, which are owned by third parties, exist in fields that relate to our intended products and our underlying methodologies, discoveries and technologies. A third party may sue us for infringing its patent rights.

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Our ability to successfully commercialize our intended products depends on our ability to protect our proprietary technology and information. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of third-party proprietary rights. In addition, a third party may claim that we have improperly obtained or used its confidential or proprietary information. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation could divert our management’s attention from other aspects of our business. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations. Additionally, we cannot be certain of the level of protection, if any that will be provided by our patents if they are challenged in court, where our competitors may raise defenses such as invalidity, unenforceability or possession of a valid license.

If we are found to infringe upon intellectual property rights of third parties, we might be forced to pay damages, potentially including triple damages. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license and are unable to design around a patent, we may be unable to effectively market some or all of our future products, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations.

If we are unable to protect our trade secrets, we may be unable to protect our interests in proprietary technology, processes and know-how that is not patentable or for which we have elected not to seek patent protection.

In addition to patented technology, we rely upon trade secret protection to protect our interests in proprietary know-how and for processes for which patents are difficult or impossible to obtain or enforce. We may not be able to protect our trade secrets adequately. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors and outside scientific advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. We rely, in part, on non-disclosure and confidentiality agreements with our employees, consultants and other parties to protect our trade secrets and other proprietary technology. These agreements may be breached, and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. Any disclosure of confidential information into the public domain or to third parties could allow our competitors to learn our trade secrets and use the information in competition against us, which could adversely affect our competitive advantage.

Defects in our products may subject us to substantial damages which could materially harm our business or financial condition.

The products we develop could lead to product liability claims based on allegations that one or more of our products contained a design or manufacturing defect which resulted in the failure to detect the disease for which it was designed. A product liability claim could result in substantial damages and be costly and time consuming to defend, either of which could materially harm our business or financial condition. We cannot assure you that our product liability insurance would protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing insurance coverage in the future.

Risks Associated with our Common Stock

The market prices and trading volume of our stock may be volatile.

The market price of our common stock is likely to be highly volatile and the trading volume may fluctuate and cause significant price variation to occur. We cannot assure you that the market prices of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the prices of our shares or result in fluctuations in those prices or in trading volume of our common stock could include the following, many of which will be beyond our control:

competition; 

comments by securities analysts regarding our business or prospects; 

additions or departures of key personnel; 

our ability to execute our business plan; 

issuance of common stock or other securities; 

operating results that fall below expectations; 

loss of any strategic relationship; 

industry developments; 

economic and other external factors; and 

period-to-period fluctuations in our financial results. 

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In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price and trading volume of our common stock.

Share ownership by our executive officers and directors make it more difficult for third parties to acquire us or effectuate a change of control that might be viewed favorably by other stockholders.

As of February 17, 2020, our executive officers and directors beneficially owned, in the aggregate, approximately 14.9% of our outstanding shares. As a result, if the executive officers and directors were to oppose a third party’s acquisition proposal for, or a change in control of, the Company, such officers and directors may have sufficient voting power to be able to block or at least delay such an acquisition or change in control from taking place, even if other stockholders would support such a sale or change of control.

Our corporate governance documents, and certain corporate laws applicable to us, could make a takeover attempt, which may be beneficial to our stockholders, more difficult.

Our Board of Directors, or Board, has the power, under our charter documents to:

issue additional shares of common stock without having to obtain stockholder approval for such action; 

fill vacant directorships except for vacancies created by the removal of a director; 

amend our bylaws without stockholder approval subject to certain exceptions; and 

require compliance with an advance notice procedure with regard to business to be brought by a stockholder before an annual or special meeting of stockholders and with regard to the nomination by stockholders of candidates for election as directors. 

These provisions may discourage potential acquisition proposals and could delay or prevent a change of control, including under circumstances in which our stockholders might otherwise receive a premium over the market price of our common stock.

We do not expect to pay dividends in the foreseeable future.

We have never declared or paid cash dividends on our common stock. We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. We cannot assure you of a positive return on investment or that you will not lose the entire amount of your investment in our common stock.

We may in the future issue additional shares of our common stock which would reduce investors’ ownership interests in the Company, and which may cause our stock price to decline.

Our Second Amended and Restated Certificate of Incorporation authorizes the issuance of 100,000,000 shares of common stock, par value $0.001 per share. The future issuance of all or part of our remaining authorized common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the percentage ownership of our stockholders and, depending upon the prices at which such shares are sold or issued, on their investment in our common stock and, therefore, could have an adverse effect on any trading market for our common stock.

Future sales of our common stock could depress the market price of our common stock.

Sales of a substantial number of shares of our common stock in the public market or the perception that large sales of our shares could occur, could cause the market price of our common stock to decline or limit our future ability to raise capital through an offering of equity securities.

If equity research analysts do not publish research or reports about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.

The trading market for our common stock could be affected by whether and to what extent equity research analysts publish research or reports about us and our business. If one or more equity analysts cover us and publish research reports about our common stock, the price of our stock could decline rapidly if one or more securities analysts downgrade our stock or if those analysts’ issue or offer unfavorable commentary or cease publishing reports about us. If any of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.

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We are a smaller reporting company and a non-accelerated filer and we cannot be certain if the reduced disclosure requirements applicable to our filing status, as well as the exemption from the requirement to provide an auditor’s attestation report regarding the effectiveness of our internal controls, will make our common stock less attractive to investors.

We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million measured as of the last business day of our most recently completed second fiscal quarter.  “Smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. We are also a “non-accelerated filer,” meaning we have a public float of less than $75 million measured as of the last business day of our most recently completed second fiscal quarter.  As a “non-accelerated filer,” we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting.  Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” and as a “non-accelerated filer” may make it harder for investors to analyze our results of operations and financial prospects and may make our common stock a less attractive investment.

ITEM 1B.UNRESOLVED STAFF COMMENTS 

ITEM 2.PROPERTIES 

Listed below are our current facilities as of December 31, 2019:

(1)Belgian Volition purchased property located in Namur, Belgium, in October 2016, to be used as a laboratory facility for R&D. The purchase price for the property was €1.2 million Euros, exclusive of any closing costs. 

(2)Volition Diagnostics UK signed a two-year lease for this property located at 93-95 Gloucester Place, London, W1U 6JQ, United Kingdom, commencing January 30, 2019, at an annual rent of £118,800 GBP. 

(3)Singapore Volition signed a one-year lease for this property, commencing August 1, 2019, located at 1 Scotts Road, #24-05 Shaw Centre, Singapore 228208, at an annual rent of SGD 29,508. 

(4)VolitionRx Limited signed a three-year lease for this property, commencing on June 1, 2019, located at 13215 Bee Cave Parkway, Suite 125, Galleria Oaks B, Austin , Texas 78738, at an annual rent of $34,384. 

ITEM 3.LEGAL PROCEEDINGS 

In the ordinary course of business, we may be subject to claims, counter claims, suits and other litigation of the type that generally arise from the conduct of our business. We are not aware of any threatened or pending litigation that we expect will have a material adverse effect on our business operations, financial condition or results of operations.

ITEM 4.MINE SAFETY DISCLOSURES 

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PART II

Market Information

Our common stock is currently traded on the NYSE American under the symbol “VNRX”.  

As of February 17, 2020, there were 41,204,685 shares of our common stock outstanding held by 153 holders of record, based on information provided by our transfer agent. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.

Dividends

We have not declared or paid any cash dividends on our common stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our common stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our board of directors and will depend upon, among other things, future earnings, operating and financial conditions, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our common stock will be paid in the future.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required under this item is incorporated by reference from our definitive proxy statement related to our 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, on or before April 29, 2020.

Recent Sales of Unregistered Securities

From October 1, 2019 through December 31, 2019, we sold the following securities on an unregistered basis for which disclosure under Item 701 of Regulation S-K was not previously provided in a Form 10-Q or Form 8-K filed with the SEC:

On November 15, 2019, 4,167 stock options were exercised to purchase shares of our common stock at $5.00 per share in a cashless exercise that resulted in the issuance of 371 shares of our common stock. 

From November 25, 2019 to November 27, 2019, warrants to purchase 29,392 shares of our common stock were exercised at a price of $2.40 per share, for gross proceeds to the Company of $70,541.

Repurchase of Equity Securities

None.

ITEM 6.SELECTED FINANCIAL DATA 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

Overview

We have identified the specific processes and resources required to achieve the near and medium-term objectives of our business plan, including personnel, facilities, equipment, research and testing materials including antibodies and clinical samples, and the protection of intellectual property. To date, operations have proceeded satisfactorily in relation to our business plan. However, it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost. It is also possible that the results of some processes may not be as expected, and that modifications of procedures and materials may be required. Such events could result in delays to the achievement of the near and medium-term objectives of our business plan, in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the IVD market.

Our future as an operating business will depend on our ability to obtain sufficient capital contributions, financing and/or generate revenues as may be required to sustain our operations.  Management plans to address the above as needed by: (a) securing additional grant funds; (b) obtaining additional equity or debt financing; (c) granting licenses to third parties in exchange for specified up-front and/or back end payments; and (d) developing and commercializing our products on an accelerated timeline. Management continues to exercise tight cost controls to conserve cash.

Our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. If we are unable to obtain adequate capital, we could be forced to cease operations.

Liquidity and Capital Resources

We have financed our operations since inception primarily through private placements and public offerings of our common stock. As of December 31, 2019, we had cash and cash equivalents of $16,966,168.

Net cash used in operating activities was $12.7 million and $14.7 million for the years ended December 31, 2019 and December 31, 2018, respectively. The decrease in cash used in operating activities during 2019 was primarily due to reduced research and development activities together with lower charges for stock-based compensation offset by increased personnel expenses.

Net cash used in investing activities was $0.5 million and $0.3 million for the years ended December 31, 2019 and December 31, 2018, respectively. The increase in cash used in investing activities during 2019 was primarily a result of increased purchases of laboratory equipment for our research and development facility in Belgium.

Net cash provided by financing activities was $16.9 million and $18.0 million for the years ended December 31, 2019 and December 31, 2018, respectively. The decrease in cash provided by financing activities during 2019 was due to less capital raised from debt and equity financing as well as reduced debt payments during such period. During 2019, the Company received $16.6 million in net proceeds from the issuance of common stock plus debt funding of $0.9 million, offset by debt payments of $0.4 million.

The following table summarizes our approximate contractual payments due by year as of December 31, 2019.

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We intend to use our cash reserves to predominantly fund further research and development activities.  We do not currently have any substantial source of revenues and expect to rely on additional future financing, through the sale of equity or debt securities, or the sale of licensing rights, to provide sufficient funding to execute our strategic plan. There is no assurance that we will be successful in raising further funds.

In the event that additional financing is delayed, we will prioritize the maintenance of our research and development personnel and facilities, primarily in Belgium, and the maintenance of our patent rights. In such instance, the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the IVD market would be delayed. In the event of an ongoing lack of financing, it may be necessary to discontinue operations, which will adversely affect the value of our common stock.

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors stated in their report on our audited financial statements for the fiscal year ended December 31, 2019 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern.

Results of Operations

Comparison of the Years Ended December 31, 2019 and December 31, 2018

The following table sets forth our results of operations for the years ended on December 31, 2019 and December 31, 2018, respectively (expressed in United Stated Dollars, except outstanding share numbers and percentages).

Revenues

Our operations are still predominantly in the research and development stage and we had minimal revenues of $17,096 and $Nil during the years ended December 31, 2019 and December 31, 2018, respectively.

21

Operating Expenses

Total operating expenses decreased to $16.1 million from $17.9 million for the years ended December 31, 2019 and December 31, 2018, respectively, as a result of the factors described below.

Research and Development Expenses

Research and development expenses decreased to $10.4 million from $10.9 million for the years ended December 31, 2019 and December 31, 2018, respectively. The decrease in overall research and development expenditures during 2019 was primarily related to lower research and collaborative expenditures, lower chemical and biological costs partly offset by increased laboratory costs.

General and Administrative Expenses

General and administrative expenses decreased to $4.7 million from $5.8 million for the years ended December 31, 2019 and December 31, 2018, respectively. The decrease in overall general and administrative expenditures during 2019 were primarily due to favorable foreign exchange costs, reduced legal costs in relation to our capital raises and reduced stock-based compensation expenses.

Sales and Marketing Expenses

Sales and marketing expenses decreased to $1.0 million from $1.2 million for the years ended December 31, 2019 and December 31, 2018, respectively. The decrease in overall sales and marketing expenditures was primarily due to reduced stock-based compensation and personnel expenses.

Other Expenses

Other expenses decreased to $56,131 compared to $110,924 for the years ended December 31, 2019 and December 31, 2018, respectively. This decrease was primarily due the exercise of warrants to purchase approximately 1.7 million shares of our common stock by Cotterford Company Limited during 2019 at an amended exercise price of $2.90 per share, which resulted in a $196,957 expense, offset by interest income received from cash deposited in an overnight money market account and grant income received.

22

Net Loss

For the year ended December 31, 2019, the Company’s net loss was $16.1 million, a decrease of approximately $1.9 million, or 11%, in comparison to a net loss of $18.0 million for the year ended December 31, 2018. The change was a result of the factors described above.

Going Concern

We have not attained profitable operations and are dependent upon obtaining external financing to continue to pursue our operational and strategic plans. For these reasons, management has determined that there is substantial doubt that the business will be able to continue as a going concern without further financing.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Future Equity or Debt Financings

We may seek to obtain additional capital through the sale of debt or equity securities, if we deem it desirable or necessary. However, we may be unable to obtain such additional capital when needed, or on terms favorable to us or our stockholders, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or such equity securities may provide for rights, preferences or privileges senior to those of the holders of our common stock. If additional funds are raised through the issuance of debt securities, the terms of such securities may place restrictions on our ability to operate our business.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, applied on a consistent basis. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements.  A complete summary of these policies is included in the notes to our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

We consider the following accounting policies to be critical:

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” and ASC 505-50, “Equity-Based Payments to Non-Employees”. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

23

Impairment of Long-Lived Assets

In accordance with ASC 360, “Property Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Impairment losses of $nil and $nil were recognized during the years ended December 31, 2019 and December 31, 2018, respectively.

Foreign Currency Translation

The Company has functional currencies in the Euro, the United States Dollar and British Pounds Sterling and its reporting currency is the United States Dollar. Management has adopted ASC 830-20, “Foreign Currency Matters – Foreign Currency Transactions”. All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. For revenues and expenses, the weighted average exchange rate for the period is used. Gains and losses arising on translation of foreign currency denominated transactions are included in Other Comprehensive Income.

Use of Estimates

The Company bases its estimates and assumptions on current facts, historical experiences and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.

Recently Issued Accounting Pronouncements

The Company has implemented all applicable new accounting pronouncements that are in effect. The Company does not believe that there are any other applicable new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

F-25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of VolitionRx Limited:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of VolitionRx Limited (“the Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses since inception, has negative cash flows from operations, and has generated minimal revenues.  These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.  

/s/ Sadler Gibb & Assoc.

We have served as the Company’s auditor since 2011.

Salt Lake City, UT

February 20, 2020

F-26

VOLITIONRX LIMITED

Consolidated Balance Sheets

(Expressed in United States Dollars, except share numbers)

F-27

VOLITIONRX LIMITED

Consolidated Statements of Operations and Comprehensive Loss

(Expressed in United States Dollars, except share numbers)

F-28

VOLITIONRX LIMITED

Consolidated Statement of Stockholders’ Equity

For the Years Ended December 31, 2019 and 2018

(Expressed in United States Dollars, except share numbers)

F-29

VOLITIONRX LIMITED

Consolidated Statements of Cash Flows

(Expressed in United States Dollars)

F-30

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 1 - Nature of Operations

The Company was incorporated under the laws of the State of Delaware on September 24, 1998. On September 22, 2011, the Company filed a Certificate for Renewal and Revival of Charter with the Secretary of State of Delaware. Pursuant to Section 312(1) of the Delaware General Corporation Law, the Company was revived under the new name of “VolitionRX Limited” and the name change became effective on October 11, 2011. On October 7, 2016, the Company amended its Certificate of Incorporation to reflect a name change to “VolitionRx Limited.”

On October 6, 2011, the Company entered into a share exchange agreement with Singapore Volition Pte. Limited, a Singapore corporation incorporated on August 5, 2010 (“Singapore Volition”), and the shareholders of Singapore Volition.  Pursuant to the terms of the share exchange agreement, the former shareholders of Singapore Volition held 85% of the issued and outstanding common shares of the Company.  The issuance was deemed to be a reverse acquisition for accounting purposes and as such, Singapore Volition is regarded as the predecessor of the Company. The number of shares outstanding and per share amounts of the Company have been restated to recognize the foregoing recapitalization.

The Company’s principal business objective through its subsidiaries is to develop and bring to market simple, easy to use, cost effective blood tests designed to help diagnose a range of cancers and other diseases.  The tests are based on the science of Nucleosomics, which is the practice of identifying and measuring nucleosomes in the bloodstream or other bodily fluid – an indication that disease is present.  The Company has one wholly owned subsidiary, Singapore Volition.  Singapore Volition has one wholly owned subsidiary, Belgian Volition SPRL, a Belgium private limited liability company formerly known as ValiBioSA (“Belgian Volition”), which it acquired as of September 22, 2010.  Belgian Volition has three subsidiaries, Volition Diagnostics UK Limited (“Volition Diagnostics”), which was formed as of November 13, 2015, Volition America, Inc. (“Volition America”), which was formed as of February 3, 2017, as well as its majority–owned subsidiary Volition Veterinary Diagnostics Development LLC (“Volition Vet”), which was formed as of June 3, 2019.  Following the acquisition of Singapore Volition in 2011, the Company’s fiscal year end was changed from August 31 to December 31.

Note 2 - Going Concern

The Company's Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses since inception of $89.8 million, has negative cash flows from operations, and has minimal revenues, which creates substantial doubt about its ability to continue as a going concern for a period at least one year from the date of issuance of these Consolidated Financial Statements.

The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions, financing and/or generate revenues as may be required to sustain its operations. Management plans to address the above as needed by, (a) securing additional grant funds, (b) obtaining additional financing through debt or equity transactions; (c) granting licenses to third parties in exchange for specified up-front and/or back end payments, and (d) developing and commercializing its products on an accelerated timeline. Management continues to exercise tight cost controls to conserve cash.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and to eventually attain profitable operations. The accompanying Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

F-31

VOLITIONRX LIMITED

Note 3 - Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP and are expressed in United States dollars. The Company’s fiscal year end is December 31.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company also regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowances, impairment analysis of intangible assets and valuations of stock-based compensation.

The Company bases its estimates and assumptions on current facts, historical experiences and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.

Principles of Consolidation

The accompanying consolidated financial statements for the year ended December 31, 2019 include the accounts of the Company and its wholly owned subsidiaries, Singapore Volition, Belgian Volition, Volition Diagnostics UK Limited and Volition America, as well as its majority-owned subsidiary Volition Vet. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At December 31, 2019 and December 31, 2018, the Company had $16,966,168 and $13,427,222, respectively, in cash and cash equivalents. At December 31, 2019 and December 31, 2018, the Company had $16,499,679 and $12,899,095, respectively, in its domestic accounts in excess of Federal Deposit Insurance Corporation insured limits. At December 31, 2019 and December 31, 2018, the Company had $2,887,483 and $451,468, respectively, in its foreign accounts in excess of the Belgian Deposit Guarantee insured limits. At December 31, 2019 and December 31, 2018, the Company had $170,387 and $76,665, respectively, in its foreign accounts in excess of the Singapore Deposit Insurance Scheme. At December 31, 2019 and December 31, 2018, the Company had $777,432 and $55,398, respectively, in its foreign accounts in excess of the UK Deposit Protection Scheme.

Basic and Diluted Net Loss Per Share

The Company computes net loss per share in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings Per Share,” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. As of December 31, 2019, 4,359,301 potential common shares equivalents from warrants and options were excluded from the diluted EPS calculations as their effect is anti-dilutive.

F-32

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 3 - Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation

The Company has functional currencies in the Euro, the United States Dollar and British Pounds Sterling and its reporting currency is the United States Dollar. Management has adopted ASC 830-20, “Foreign Currency Matters – Foreign Currency Transactions”. All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. For revenues and expenses, the weighted average exchange rate for the period is used. Gains and losses arising on translation of foreign currency denominated transactions are included in other comprehensive income (loss).

Financial Instruments

Pursuant to ASC 820, “Fair Value Measurements and Disclosures”, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the assets or liabilities such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, loans payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consists of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

Other Comprehensive Income (Loss)

ASC 220, “Other Comprehensive Income/(Loss)”, establishes standards for the reporting and display of other comprehensive loss and its components in the financial statements. As of December 31, 2019, the Company had $125,670 of accumulated other comprehensive loss, relating to foreign currency translation.

F-33

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 3 - Summary of Significant Accounting Policies (Continued)

Revenue Recognition

Beginning in 2014, the Financial Accounting Standards Board (“FASB”) issued several Accounting Standards Updates establishing Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).  ASC 606 replaces most industry-specific revenue recognition guidance in U.S. GAAP with a new principles-based, five-step revenue recognition model.  The Company adopted ASC 606 effective January 1, 2019. Under ASC 606, the Company recognizes revenues when the customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company  recognizes revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation(s).

The Company generates revenue from its license agreement with Active Motif, Inc. (“Active Motif”) for the sale of Research Use Only (“ROU”) kits from which the Company receives royalties. In addition, revenue is received from external third parties for services the Company performs for them in its laboratory.

Revenues, and their respective treatment for financial reporting purposes under ASC 606, are as follows:

Royalty

The Company receives royalty revenues on the net sales recognized during the period in which the revenue is earned, and the amount is determinable from the licensee. These are presented under “Royalty” in the consolidated statements of operations. The Company does not have future performance obligations under this revenue stream. In accordance with ASC 606, the Company records these revenues based on estimates of the net sales that occurred during the relevant period from the licensee. The relevant period estimates of these royalties are based on preliminary gross sales data provided by Active Motif and analysis of historical gross-to-net adjustments. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known.

Services

The Company includes revenue recognized from laboratory services performed in the Company’s laboratory on behalf of third parties under “Services” in the consolidated statements of operations.

For each development and/or commercialization agreement that results in revenues, the Company identifies all performance obligations, aside from those that are immaterial, which may include a license to intellectual property and know-how, development activities and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

Research and Development

In accordance with ASC 730, the Company follows the policy of expensing its research and development costs in the period in which they are incurred. The Company incurred research and development expenses of $10.4 million and $10.9 million during the years ended December 31, 2019 and December 31, 2018, respectively.

F-34

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 3 - Summary of Significant Accounting Policies (Continued)

Impairment of Long-Lived Assets

In accordance with ASC 360, “Property Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Impairment losses of $nil and $nil were recognized during the years ended December 31, 2019 and December 31, 2018, respectively.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” and ASC 505-50, Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

Leases

In February of 2016, FASB issued Accounting Standards Update No. 2016-02 – Leases (“Topic 842”), which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company adopted Topic 842 as of January 1, 2019 using the modified retrospective transition method and prior periods have not been restated. Upon implementation, the Company recognized an initial operating lease right-of-use asset of $110,630 and operating lease liability of $110,630. Due to the simplistic nature of the Company's leases, no retained earnings adjustment was required.

Grants received

The Company receives funding from public bodies for a proportion of the costs of specific projects. Funds are received in line with claims submitted for the agreed expenditure. The Company recognizes grant income once claims submitted are approved and funds are received. General working capital funding received at the commencement of a project is treated as deferred income until it has been utilized for the expenditure claimed. Funding received that is repayable is shown as a liability.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

F-35

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 4 - Property and Equipment

The Company’s property and equipment consist of the following amounts as of December 31, 2019 and December 31, 2018:

The majority of capital expenditures in 2019 are related to €0.4 million Euros for software and laboratory equipment.

During the years ended December 31, 2019 and December 31, 2018, the Company recognized $589,532 and $548,005, respectively, in depreciation expense.

F-36

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 5 - Intangible Assets

The Company’s intangible assets consist of patents, mainly acquired in the acquisition of Belgian Volition. The patents are being amortized over the assets’ estimated useful lives, which range from 8 to 20 years.

During the years ended December 31, 2019, and December 31, 2018, the Company recognized $87,285 and $91,911, respectively, in amortization expense.

The Company amortizes the long-lived assets on a straight-line basis with terms ranging from 8 to 20 years. The annual estimated amortization schedule over the next five years is as follows:

The Company periodically reviews its long-lived assets to ensure that their carrying value does not exceed their fair market value. The Company carried out such a review in accordance with ASC 360 as of December 31, 2019. The result of this review confirmed that the ongoing value of the patents was not impaired as of December 31, 2019.

Note 6 - Related Party Transactions

See Note 7 for common stock issued to related parties and Note 8 for stock options and warrants issued to related parties. The Company has agreements with related parties for consultancy services which are accrued under management and directors’ fees payable (see consolidated balance sheet).

F-37

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

As of December 31, 2019, the Company was authorized to issue 100 million shares of common stock par value $0.001 per share, of which 41,125,303 and 35,335,378 shares were issued as of December 31, 2019 and December 31, 2018, respectively.

On June 14, 2019, an amendment to the 2015 Stock Incentive Plan (the “2015 Plan”) was approved by the stockholders at the annual meeting to increase the number of shares of common stock available for issuance under the 2015 Plan by 1,000,000 shares to an aggregate maximum of 4,250,000 shares.

2019

Issuances Upon Warrant and Option Exercises 

On August 10, 2018, the Company issued to Cotterford Company Limited (“Cotterford”) in a private placement offering (PIPE) 5.0 million shares of common stock at a price of $1.80 per share, for aggregate gross proceeds of $9.0 million.  In connection with the transaction, approximately $0.1 million was incurred for legal and other fees resulting in net proceeds of approximately $8.9 million. Additionally, the Company issued to Cotterford a warrant to purchase up to an additional 5.0 million shares of common stock at an exercise price of $3.00 per share payable in cash.  This transaction resulted in Cotterford becoming a significant stockholder and therefore a related party in accordance with U.S. GAAP.  The shares of common stock (including the shares underlying the warrant) were subsequently registered for resale on Form S-3 (declared effective by the SEC on October 15, 2018, File No. 333-227731).

From January 30, 2019 to February 26, 2019, warrants to purchase 754,475 shares of our common stock were exercised at a price of $2.20 per share, for gross proceeds to the Company of approximately $1.66 million. 

On March 8, 2019, Cotterford partially exercised its warrant and purchased 1,724,138 shares of our common stock at a price of $2.90 per share, for gross proceeds to the Company of $5.0 million. 

On May 3, 2019, Cotterford partially exercised its warrant and purchased 1,666,667 shares of our common stock at a price of $3.00 per share, for gross proceeds to the Company of $5.0 million.

On July 24, 2019, Cotterford exercised the remainder of its warrant and purchased 1,609,195 shares of our common stock at a price of $3.00 per share, for gross proceeds to the Company of approximately $4.8 million.

From August 20, 2019 to September 20, 2019, 6,166 stock options were exercised to purchase shares of our common stock at $2.35 per share in a cashless exercise that resulted in the issuance of 2,487 shares of our common stock.

On November 15, 2019, 4,167 stock options were exercised to purchase shares of our common stock at $5.00 per share in a cashless exercise that resulted in the issuance of 371 shares of our common stock.

From November 25, 2019 to November 27, 2019, warrants to purchase 29,392 shares of our common stock were exercised at a price of $2.40 per share, for gross proceeds to the Company of $70,541.

Equity Distribution Agreement 

2018

From February 5 to June 4, 2018, 29,375 warrants were exercised to purchase shares of our common stock at a price of $2.00 per share in a cashless exercise that resulted in the issuance of 11,831 shares of our common stock.

F-38

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 7 - Common Stock (Continued)

On March 13, 2018, the Company issued 3.5 million shares of common stock in a registered public offering at a price of $2.40 per share, for aggregate gross proceeds of $8.4 million. In connection with the transaction, approximately $0.8 million was incurred for legal and underwriting fees resulting in net proceeds of approximately $7.6 million. Pursuant to this offering, the underwriters had the option to purchase up to an additional 525,000 shares of our common stock for 30 days following the pricing of the initial closing, which option was not exercised.

On August 10, 2018, the Company issued to Cotterford in a private placement offering (“PIPE”) 5.0 million shares of our common stock at a price of $1.80 per share, for aggregate gross proceeds of $9.0 million.

On October 16, 2018, 243,903 warrants were exercised at a price of $2.40 per share, for gross cash proceeds to the Company of $585,367. As a result, a total of 243,903 shares of our common stock were issued.

On October 16, 2018, 60,250 warrants were exercised at a price of $2.20 per share, for gross cash proceeds to the Company of $132,550. As a result, a total of 60,250 shares of our common stock were issued.

Note 8 - Warrants and Options

a)  Warrants

The following table summarizes the changes in warrants outstanding of the Company during the years ended December 31, 2019 and December 31, 2018:

2019

Effective March 5, 2019, the Company entered into an amendment to an outstanding warrant to purchase up to an aggregate of 5.0 million shares of our common stock, originally issued to Cotterford, a significant stockholder, in connection with an equity financing completed on or about August 10, 2018.  The amendment temporarily reduced the exercise price of such warrant from $3.00 per share to $2.90 per share through the close of business on March 8, 2019. As a result of this amendment, $196,957 of financing costs were recorded in other expenses.

On March 8, 2019, Cotterford partially exercised its warrant and purchased 1,724,138 shares of our common stock at $2.90 per share resulting in gross proceeds to the Company of $5.0 million.

On May 3, 2019, Cotterford partially exercised its warrant and purchased 1,666,667 shares of our common stock at $3.00 per share resulting in gross proceeds of $5.0 million to the Company.

On July 1, 2019, the Company modified the performance criteria for certain vesting milestones on a warrant held by an officer of the Company and as a result the Company re-measured warrants held by the officer, to purchase 125,000 shares of our common stock at an exercise price of $2.47 per share, resulting in $11,829 of additional warrant expense to be recorded over the vesting period. These warrants vest on achievement of certain business objectives and expire 3 years from the date of vesting.

F-39

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 8 - Warrants and Options (Continued)

On July 24, 2019, Cotterford exercised the remainder of its warrant and purchased 1,609,195 shares of our common stock at $3.00 per share resulting in gross proceeds of $4.8 million to the Company.

During the year 2019, warrants to purchase an aggregate of 5,783,067 shares of our common stock were exercised (including the exercises by Cotterford referenced above) for gross cash proceeds to the Company of approximately of $16.6 million.

2018

On August 10, 2018, in conjunction with the PIPE transaction the Company issued to Cotterford a warrant to purchase up to 5.0 million shares of common stock at an exercise price of $3.00 per share payable in cash (subject to adjustment pursuant to the terms of the warrant). The warrant has an expiration date of August 10, 2019 and is exercisable for a period of 6 months commencing on February 10, 2019.

On November 13, 2018, the Board of Directors amended the terms of an aggregate of 29,392 outstanding warrants to purchase common stock of the Company originally issued in connection with an equity financing completed on or about December 31, 2013 to extend the expiration date from December 31, 2018 to December 31, 2019.

During 2018, 333,528 warrants were exercised for gross cash proceeds to the Company of $717,917.  Refer to Note 7 for the details of the exercises.

Below is a table summarizing the warrants issued and outstanding as of December 31, 2019, which have a weighted average exercise price of $2.90 per share and an aggregate weighted average remaining contractual life of 2.91 years.

Warrant expense of $8,506 and $22,776 was recorded in the years ended December 31, 2019, and December 31, 2018, respectively. Total remaining unrecognized compensation cost related to non-vested warrants is $20,335 and is expected to be recognized over a period of 1.0 years. As of December 31, 2019, the total intrinsic value of warrants was $348,900.

b)  Options

The Company currently has options outstanding under both its 2011 Equity Incentive Plan (the “2011 Plan”) (for option issuances prior to 2016) and its 2015 Plan (for option issuances commencing in 2016). Effective as of January 1, 2016, no additional awards were or may be made under the 2011 Plan.

The 2015 Plan was adopted by the Board of Directors on August 18, 2015 and approved by the stockholders at an annual meeting held on October 30, 2015. On August 5, 2016, the Board of Directors adopted an amendment to the 2015 Plan to increase the number of shares of common stock available for issuance under such Plan by 750,000 shares to an aggregate maximum of 1,750,000 shares, which amendment was approved by the stockholders at an annual meeting held on October 7, 2016. On June 13, 2017, the Board of Directors adopted a subsequent amendment to the 2015 Plan to increase the number of shares of common stock available for issuance under such Plan by 750,000 shares to an aggregate maximum of 2,500,000 shares, which amendment was approved by the stockholders at an annual meeting held on September 8, 2017. On June 15, 2018, the Board of Directors adopted a subsequent amendment to the 2015 Plan to increase the number of shares of common stock available for issuance under such Plan by 750,000 shares to an aggregate maximum of 3,250,000 shares, which amendment was approved by the stockholders at an annual meeting held on September 7, 2018. On March 27, 2019, the Board of Directors adopted a subsequent amendment to the 2015 Plan to increase the number of common stock available for issuance under the Plan by 1,000,000 shares to an aggregate maximum of 4,250,000 shares, which amendment was approved by the stockholders at an annual meeting held on June 14, 2019.

F-40

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 8 - Warrants and Options (Continued)

The 2015 Plan permits the grant of incentive stock options, non-statutory stock options, restricted stock awards, stock bonus awards, stock appreciation rights, restricted stock units and performance awards. The primary purpose of the 2015 Plan is to enhance the Company’s ability to attract and retain the services of qualified employees, officers, directors, consultants and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company that is tied to the Company’s performance, thereby giving them an interest in the success and increased value of the Company. The 2015 Plan is administered by the Compensation Committee comprised solely of members of the Board of Directors or by the Board of Directors as a whole.

The following table summarizes the changes in options outstanding of the Company during the years ended December 31, 2019 and 2018:

2019

Effective February 11, 2019, the Company granted stock options to purchase 730,000 shares of our common stock to various Company personnel (including directors, executives, members of management and employees) for services to the Company. These options vested on February 11, 2020 and expire 5 years after the vesting date, with an exercise price of $3.25 per share. The Company has calculated the estimated fair market value of these options at $1,569,816, using the Black-Scholes model and the following assumptions: term 6 years, stock price $3.16, exercise price $3.25, 77.86% volatility, 2.52% risk free rate, and no forfeiture rate.

Subsequent to the February 2019 grant, stock options to purchase 45,000 shares of our common stock subject to the grant were forfeited.

2018

Effective January 23, 2018, the Company granted stock options to purchase 780,000 shares of our common stock to various Company personnel (including directors, executives, members of management and employees) for services to the Company. These options vested on January 23, 2019 and expire 5 years after the vesting date, with an exercise price of $4.00 per share. The Company has calculated the estimated fair market value of these options at $1,930,265, using the Black-Scholes model and the following assumptions: term 6 years, stock price $3.75, exercise price $4.00, 75.4% volatility, 2.55% risk free rate, and no forfeiture rate.

F-41

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 8 - Warrants and Options (Continued)

Effective September 28, 2018, the Company granted stock options to purchase 25,000 shares of our common stock to the Company controller for services to the Company. These options vested on September 28, 2019 and expire 5 years after the vesting date, with an exercise price of $4.00 per share. The Company has calculated the estimated fair market value of these options at $39,733, using the Black-Scholes model and the following assumptions: term 6 years, stock price $2.59, exercise price $4.00, 77.59% volatility, 3.01% risk free rate, and no forfeiture rate.

In December 2018, the Board of Directors amended the terms of certain outstanding options such that (i) the expiration date for outstanding options to purchase up to an aggregate of 645,000 shares of the Company’s common stock, granted on August 18, 2014 under the 2011 Plan, was extended for both vesting installments from four (4) years from the vesting date of each installment to a single expiration date of August 18, 2020, (ii) the expiration date for outstanding options to purchase up to an aggregate of 20,000 shares of the Company’s common stock, granted on May 18, 2015 under the 2011 Plan, was extended from four (4) years after the vesting date to May 18, 2021, and (iii) the expiration date for outstanding options to purchase up to an aggregate of 317,000 shares of the Company’s common stock, granted July 23, 2015 under the 2011 Plan, was extended from four (4) years after vesting to five years and six months after vesting, or July 23, 2021.

Stock option expense of $1,458,607 and $2,570,095 was recorded in the year ended December 31, 2019 and December 31, 2018, respectively. Total remaining unrecognized compensation cost related to non-vested stock options is $165,465 and is expected to be recognized over a period of 0.12 years. As of December 31, 2019, the total intrinsic value of stock options was $3,759,645.

F-42

VOLITIONRX LIMITED

Notes to Consolidated Financial Statements

For Years Ended December 31, 2019 and 2018

($ expressed in United States Dollars)

Note 9 - Income Taxes

The Company has estimated net operating losses for the years ended December 31, 2019 and 2018 of $17.3 million and $12.4 million, respectively, available to offset taxable income in future years.

The significant components of deferred income taxes and assets as of December 31, 2019 and December 31, 2018 are as follows: